R-SQUARED

It is a statistical measure that represents the percentage of a fund's or security's movements that are explained by

movements in a benchmark index.

The success of Beta is dependent on the correlation of a fund to its benchmark or its index. R-squared describes the

level of association between the fund's volatility and market risk, or more specifically, the degree to which a fund's

volatility is a result of the day-to-day fluctuations experienced by the overall market. R-squared values range between 0

and 1, where 0 represents no correlation and 1 represents full correlation. If a fund's beta has an R-squared value that is

close to 1, the beta of the fund should be trusted. On the other hand, an R-squared value that is less than 0.5 indicates

that the beta is not particularly useful because the fund is being compared against an inappropriate benchmark.

4. SHARPE RATIO

It is a ratio developed by Nobel Laureate Bill Sharpe to measure risk-adjusted performance. It is calculated

by subtracting the risk-free rate from the rate of return for a portfolio and dividing the result by the standard

deviation of the portfolio returns.

Sharpe Ratio = Fund return in excess of risk free return/ Standard deviation of Fund Sharp ratio uses only the

Standard Deviation, which measures the volatility of the returns there is no problem of benchmark correlation. The

higher the Sharpe ratio, the better a funds returns relative to the amount of risk taken. Sharpe ratios are ideal for

comparing funds that have a mixed asset classes. That is balanced funds that have a component of fixed income

offerings. The Sharpe ratio tells whether the returns of a portfolio are due to smart investment decisions or a result of

excess risk. This measurement is very useful because although one portfolio or fund can reap higher returns than its

peers, it is only a good investment if those higher returns do not come with too much additional risk. The greater a

portfolio's Sharpe ratio, the better its risk-adjusted performance has been.

It is the measure of a mutual fund's risk relative to the market. The formula for alpha is the following:

[ (sum of y) - ((b)(sum of x)) ] / n

Where:n = number of observations b = beta of the fund x = rate of return for the market

y = rate of return for the fund

A positive alpha is the extra return awarded to the investor for taking additional risk rather than accepting the market
returnDividends
Dividends on equity-oriented funds (open-ended and close-ended) are totally tax-free i.e. neither does the
investor pay tax nor does the fund house pay a distribution tax.

Dividends on debt-oriented funds (open-ended and close-ended) are tax-free in the hands of the investor;
however, the fund house pays a dividend distribution tax (@14.24 per cent).
Short-term capital gains
Short-term capital gains on equity-oriented funds are taxed at a flat rate of 10 per cent. Short-term capital
gains on debt-oriented funds are added to income and taxed at the marginal rate of taxation.

Long-term capital gains

Long-term capital gains on equity-oriented funds attract a Securities Transaction Tax of 0.125 per cent.
Long-term capital gains on debt-oriented funds are taxed at higher of the two i.e.10% without indexation and
20 per cent with indexation.

Apart from tinkering with the STT rate (this was revised last year from 0.15 to 0.125 per cent), it is unlikely
that the budget will disturb the existing taxation structure.